Managing personal debt when you’re young

There are so many options for credit these days, it’s almost impossible for young people to stay out of debt. You are financially vulnerable between the age of 18 and 25 and credit companies take full advantage.

Companies target young people with the aim of getting them into as much debt as quickly as possible. The more you spend and the longer it takes you to pay off your debt, the more money they make.

Every day, young Australians are targeted by clever ads with ‘buy now, no upfront cost, no worries’ tag lines. Unfortunately, you will worry. You will worry when your credit card is maxed out and you’re not making enough money to pay the interest and principal payments on your car, TV, sofa, sunglasses etc.

If you don’t pay on time or miss your payments, it gets recorded by credit reporting agencies and stays on your record for up to 7 years. This can have serious repercussions as you move into the next stage of your financial life. Bad credit can prevent you from buying a house or starting a business.

When you’re young, a good rule of thumb is to stay away from ‘buy now pay later’ schemes and only purchase assets (such as a car) if the monthly cost is less than 20% of your monthly income.

One of the biggest causes of debt among young people is credit cards. To minimise credit card debt, never activate more than one credit card at a time and choose the lowest credit card limit available. Use your credit card as a debit card by transferring your cash onto your credit card. Only spend what’s on the card by making regular payments to keep the card topped up.